5/5/2025

Good Morning.

Market rebound since April 2nd: S&P 500 has recovered from losses, Bitcoin is at near highs, issuers are risk-on as credit spreads tighten, large bond sales, U.S. Stocks rallied for 9 consecutive trading sessions

Canada elected Mark Carney, a former central banker, as Prime Minister. He has promised to work towards economic independence and respond to U.S. tariffs.

Real GDP contracted at an annual rate of 0.3%. This is well below the average 3% experienced in the past two years. 

• GDP = Consumption + Investment + Government Spending + (Exports - Imports)

  • Imports surged as companies rushed to avoid tariffs, causing a decrease in GDP

  • Consumer spending, which is two-thirds of  GDP,  increased at a decelerated rate

In today’s newsletter, we will cover: 

• Markets

  • Sustaining the Rally

  • Labor Market Shows Strength

  • Economic Contraction Returns

  • An April for the Ages

  • Earnings Momentum Builds

  • Oil Slides Sharply

  • Eyes on the Fed

• Capital Group and KKR

• Macroeconomic Update

• What to look out for this week!

Markets 

• Sustaining the Rally: U.S. equities continued their upward momentum, with the major indexes gaining roughly 3% for the week. The S&P 500 closed Friday higher for the ninth consecutive session—its longest winning streak since November 2004.

• Labor Market Shows Strength: Markets moved higher on Friday after April’s jobs report once again outpaced expectations. The U.S. economy added 177,000 jobs—well above the 130,000 projected—marking the second consecutive month of upside surprises. Meanwhile, the unemployment rate remained unchanged at 4.2%.

• Economic Contraction Returns: U.S. GDP shrank at an annualized rate of 0.3% in Q1, marking the first negative reading since early 2022. The downturn was driven in part by a sharp rise in imports, as businesses moved quickly to build inventory ahead of anticipated tariff increases.

• An April for the Ages: April ended with the S&P 500 down just 0.7%, but that small monthly loss masked significant turbulence. By April 8, the index had plunged 12.6% from its March close, only to stage a sharp rebound over the following three weeks—nearly erasing the earlier decline amid ongoing trade tensions.

• Earnings Momentum Builds: With nearly 75% of S&P 500 companies having reported, strong results have led analysts to revise their outlook upward once again. As of Friday, first-quarter earnings are now expected to grow 12.8% year over year—up sharply from the 7.0% estimate just two weeks ago, according to FactSet.

• Oil Slides Sharply: U.S. crude oil prices ended April at around $58 per barrel, capping an 18% monthly decline—the steepest since November 2021. By Friday afternoon, oil hovered near $58.50, down 7% for the week and well below the $80 level seen as recently as mid-January.

• Eyes on the Fed: The Federal Reserve is expected to hold interest rates steady at the conclusion of its meeting on Wednesday. Still, markets are pricing in potential easing ahead—Fed funds futures suggest investors anticipate at least three quarter-point rate cuts by year-end, according to CME Group’s FedWatch tool.

KKR and Capital Group join forces to create new private market funds

• Capital Group is one of the world’s largest investment management firms, managing over $2 trillion in assets. The firm is recognized for its active management.

• KKR is a global investment firm managing over $500 B in assets across private equity, credit, real estate, and infrastructure. It has been expanding into alternative asset management.

• The two investment behemoths are launching what they call “Public-Private+

• Funds… offer a combination of publicly traded securities and private market investments packaged in interval funds.”

  • An interval fund is a type of closed-end fund that allows investors to buy shares at any time, allowing liquidity at specific intervals

• Both funds they are offering are a combination of public fixed income and private credit

• Capital Group KKR Core Plus+

  • Public: government securities, corporate bonds, mortgages, cash

  • Private: corporate direct lending and asset-based finance.

  • BB+ and below

• Capital Group KKR Multi-Sector+

  • Public: high-yield corporate debt, investment-grade corporate debt, and securitized debt

  • Private: corporate direct lending and asset-based finance

  • BB+ and below

• An interval fund is a type of closed-end fund that allows investors to buy shares at any time, allowing liquidity at specific intervals

• This collaboration follows State Street's and Apollo's foray into offering individual investors access to private markets, specifically private credit with an ETF. 

• The new partners plan on creating additional funds that include exposure to private equity and infrastructure

• These firms' business models benefit from increasing AUM, which offers steady, lucrative returns. Partnerships like this allow KKR to gain new investors, and Capital Group can create products backed by KKR. Traditional PE has struggled to come up with returns to deliver to investors. This business model benefits from an increase in AUM that is not reliant on realizing returns.

Macroeconomic Update

The latest PCE report shows inflation is cooling, but progress remains slow and doesn’t yet reflect any impact from President Trump’s new tariffs. Headline PCE rose 2.3% YoY—above the 2.2% forecast but below February’s 2.5%. Core PCE, the Fed’s preferred gauge, came in at 2.6%, down from 2.8% and in line with expectations. Monthly gains also moderated, reinforcing a cautious but ongoing disinflation trend.

(U.S. Bureau of Economic Analysis)

• ADP Private Payrolls added just 62,000 jobs, well below expectations of 114,000 and sharply down from March’s 155,000—signaling cooling momentum in private hiring.

• In contrast, Non-Farm Payrolls (official BLS data) surprised to the upside, rising 177,000 vs. the 133,000 estimate, led by gains in healthcare, transport, and finance.

• Unemployment Rate held steady at 4.2%, matching forecasts.

(WSJ)

 Overall, the latest employment data paints a mixed picture for the U.S. economy. In the ADP report, private sector employers are showing signs of caution, especially in professional and information services, likely reflecting tightening margins and delayed investment decisions. Weak hiring in these white-collar sectors suggests companies are preparing for slower growth rather than recession.

In both BLS and ADP reports, strength in healthcare and transportation points to ongoing demand in essential services and logistics—areas less sensitive to interest rates. The continued expansion in financial services also hints that consumers and businesses still seek credit and planning, despite tighter monetary conditions.

A flat unemployment rate and slower wage growth suggest the labor market remains stable but is no longer a source of inflationary pressure. The Fed may interpret this as progress toward a soft landing, but uneven sector performance highlights underlying fragility.

(WSJ)

The U.S. economy contracted by 0.3% in Q1 2025, but the decline reflects temporary distortions rather than a fundamental slowdown. A surge in imports—up over 41%—created a major drag on GDP, as businesses raced to bring in goods ahead of expected tariffs. This artificial front-loading in trade masked otherwise stable domestic demand.

Consumer spending remained firm, especially in services like healthcare and housing. Final sales to private domestic purchasers, a core measure of economic strength, rose by 3.0%, showing that household and business demand stayed intact. Equipment and structures investment posted double-digit growth, suggesting firms are prepared for future cost pressures rather than pulling back.

Overall, Q1’s negative print looks more like a statistical quirk than a signal of recession. The Fed will likely focus on core demand strength, though future quarters must confirm that this resilience continues without artificial boosts or tariff-driven distortions.

Given this backdrop, the Fed is likely to look through the Q1 contraction and focus instead on underlying trends in demand and inflation. However, risks remain; if tariffs go into effect and import prices rise sharply, headline inflation could spike to 4–5%, particularly in goods sectors. Still, unless this leads to sustained wage pressures or broad-based inflation, the Fed may treat it as a temporary shock—especially if core inflation continues to cool.

Markets appear to share this view. According to the CME FedWatch tool, no rate cuts are expected through mid-2025, but expectations for easing begin to build by October. A 25 basis point cut is fully priced in by December, with a total of 100 basis points in cuts expected by mid-2026. This outlook reflects confidence that inflation will remain on a downward path and that labor market softness will gradually justify a pivot in policy.

(CME FEDWatch)

* The CME FedWatch Tool uses fed funds futures prices to estimate the probability of future Federal Reserve interest rate decisions, providing real-time market expectations for rate hikes or cuts.

What To Look Out For This Week!

Monday (5/5):

• Earnings Reports: Ford Motor Company (F) reports amid challenges from auto tariffs.

• Earnings Reports: Palantir Technologies (PLTR) reports after the bell, providing insights into demand for artificial intelligence software.

Tuesday (5/6):

• Earnings Reports: Advanced Micro Devices (AMD) reports, facing potential financial impacts from U.S.-China trade restrictions.

Wednesday (May 7):

• Federal Reserve Decision: The Federal Reserve concludes its two-day meeting, with expectations to maintain the benchmark interest rate at 4.25%-4.5%.

• Earnings Reports: Uber Technologies (UBER) and Walt Disney Company (DIS) report. Disney's earnings will highlight progress in its streaming business despite recent job cuts.

Thursday (May 8):

• Economic Data: Initial jobless claims and wholesale inventories data are released, providing insights into the labor market and supply chain resilience.

• Earnings Reports: Coinbase (COIN), Shopify (SHOP), Anheuser-Busch InBev (BUD), ConocoPhillips (COP), Occidental Petroleum (OXY), DoorDash (DASH), Carvana (CVNA), and Electronic Arts (EA) report quarterly results.

Friday (May 9):

• Federal Reserve Speakers: Post-meeting remarks from Fed officials, including Governors Lisa Cook and Christopher Waller, and Presidents John Williams (New York Fed), Beth Hammack (Cleveland Fed), and Alberto Musalem (St. Louis Fed), are scheduled.

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Founders: Ben Banchik, Zachary Singer

Additional Contributors: William Le

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